Fiscal competition or harmonisation?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Tax harmonisation would benefit all the citizens of the EU. [Shutterstock]

Tax harmonisation will stop harmful fiscal dumping, and help realise the EU’s aim of becoming a single market, argue Ernest Maragall and Jordi Angusto. 

Ernest Maragall is a Catalan MEP from the Greens/EFA group, and Jordi Angusto is his policy advisor.

After the Luxleaks scandal appeared in the media, European Commission President Juncker came to the Parliament to assert the legality of Luxembourg’s tax practices. “Without fiscal harmonisation, those practices are legal and widely applied; do you want to harmonise?” A very vocal ‘no’ was expressed by many MEPs.

It’s hardly surprising, therefore, that the European Parliament’s TAXE committee, charged with the investigation of tax rulings and similar fiscal practices, seems almost to have forgotten about the harmonisation issue and decided to concentrate its efforts on fair competition. In discussion with Commissioner Vestager last week, for example, the word ‘harmonisation’ wasn’t even mentioned. The closest term used was “CCTB” — common corporate tax base — rather a timid term when it comes to tackling fiscal dumping.

What we have seen and continue to see in Europe is not only tax rulings that provide fiscal privileges for some big corporations, but a widespread practice of fiscal dumping around the member states as a strategy to attract capital and investment. A practice with winners (corporations and the wealthy), and losers (in the end, all of the public administrations and, therefore, all of the other taxpayers). It’s also true that some countries, probably those who came later to this practice, have lost more than others; but in the end, as in any dumping game, when the majority uses the same strategy, there are no net winners amongst them.

The main advantage of competition is its ability to minimise costs and prices. This is exactly what has happened with corporate taxes. So is this really an advantage? What will be the lowest tax and will this minimum be enough to maintain a welfare state? Will “captive” taxpayers be obliged to maintain it, instead of the beneficiaries, as it should be?

Even if we are fans of competition, we must accept that there is no competition without harmonisation. The EU is in fact a body for harmonisation which follows the goal of a single market in order to improve competition. And any Free Trade Agreement starts with harmonisation.

Who then fears fiscal harmonisation? And why? Maybe because taxes allow public administrations to survive and must be considered as barriers to competition? Is democracy the last barrier to be eliminated and sacrificed on the altar of the free market?

One of the paradoxes is that by not harmonising taxes, the EU is permitting the practice of fiscal dumping among the member states, this leads to a reduction in their fiscal capacity and, as a consequence, reduces the EU’s own budget. It means, quite frankly, fiscal and economic suicide.

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